How the Bankers of Wall Street Are Helping to Bankrupt America

I’ve heard many politicians talk about what they believe were the causes of the financial meltdown of 2008 and the money problems facing our federal, state, and local governments today. These causes include: collective bargaining, pensions, healthcare costs for public workers; subprime mortgages taken out by poor people who couldn’t actually afford to buy homes; the high costs of Social Security, Medicare, and Medicaid. Many of these same politicians rarely put the blame for the financial crises we are experiencing in this country today on the cost of waging two wars—or on the financial shenanigans of the big banks of Wall Street.

In February of 2010, Mike Elk wrote an article for the Huffington Post titled How Big Banks’ Greek-Style Schemes Are Bankrupting States Across the U.S. In it, he talked about a financial instrument called the “interest rate swap”—which is a kind of unregulated derivative.

Here’s an excerpt from Elk’s article:

Just when you thought Wall Street couldn’t get any more clever in their attempts at predatory lending, they have.

Big Banks have created an exotic financial instrument that is the equivalent of a payday loan for cash-strapped state and local governments, innocently labeled an “interest rate swap.”

In the United States, states and local governments cannot run deficits. This year states face a $357 billion budget shortfall and local governments are facing an additional $82 billion budget shortfall. States have begun cutting basic services like snow removal, reduced garbage pickup, and in Colorado Springs they went to the pawn shop – selling police helicopters on the Internet.

In a desperate effort to meet budget needs, states and local governments over the last decade have gone to the big banks to ask for exotic instruments known as interest rate swaps. These desperate state and local governments were taken advantage of in the same way that Greece was by Goldman Sachs. Likewise, these swaps are threatening the economic health of local cities and states.

Shouldn’t there be more discussion on news programs and in Congress about these “exotic financial instruments” that may be a big contributing factor to the poor financial health in which many of our states and municipalities find themselves?

In Looting Main Street, an article Matt Taibbi wrote for Rolling Stone in the spring of 2010, the author detailed how interest rate swaps were helping to bankrupt Jefferson County, Alabama. Jefferson County’s troubles began when it had to finance a new sewer project and went looking for money. Then the vultures of Wall Street came swooping into town.

Taibbi wrote:

In 1996, the average monthly sewer bill for a family of four in Birmingham was only $14.71 — but that was before the county decided to build an elaborate new sewer system with the help of out-of-state financial wizards with names like Bear Stearns, Lehman Brothers, Goldman Sachs and JP Morgan Chase. The result was a monstrous pile of borrowed money that the county used to build, in essence, the world’s grandest toilet — “the Taj Mahal of sewer-treatment plants” is how one county worker put it. What happened here in Jefferson County would turn out to be the perfect metaphor for the peculiar alchemy of modern oligarchical capitalism: A mob of corrupt local officials and morally absent financiers got together to build a giant device that converted human shit into billions of dollars of profit for Wall Street …

He continued:

And once the giant shit machine was built and the note on all that fancy construction started to come due, Wall Street came back to the local politicians and doubled down on the scam. They showed up in droves to help the poor, broke citizens of Jefferson County cut their toilet finance charges using a blizzard of incomprehensible swaps and refinance schemes — schemes that only served to postpone the repayment date a year or two while sinking the county deeper into debt. In the end, every time Jefferson County so much as breathed near one of the banks, it got charged millions in fees. There was so much money to be made bilking these dizzy Southerners that banks like JP Morgan spent millions paying middlemen who bribed — yes, that’s right, bribed, criminally bribed — the county commissioners and their buddies just to keep their business. Hell, the money was so good, JP Morgan at one point even paid Goldman Sachs $3 million just to back the fuck off, so they could have the rubes of Jefferson County to fleece all for themselves.

According to Taibbi, the original cost for the sewer project was estimated to be about $250 million. That amount was reported to have ballooned into a total indebtedness of $5 billion for Jefferson County over the years. Because of the sewer debacle, the county was not only “saddled with an astronomical debt on its sewer project, it also saw a downgrade in its overall credit rating, which left it paralyzed in its attempts to borrow money to pay for general expenditures.” This is why people’s sewers bills exploded by 400%! This is why the county had to lay off many of its employees—who also lost their health insurance. This is also why Jefferson County had to file for bankruptcy last fall.

Bloomberg reported that Jefferson County’s Chapter 9 filing left creditors like JP Morgan “facing hundreds of millions of dollars in losses” and that it could “revive concern that defaults may rise in the $2.9 trillion municipal bond market.” The filing also leaves county residents uncertain as to how much they may be charged for sewage fees in order to repay the debt. Bloomberg also reported that JP Morgan agreed to a $722 million settlement with the SEC in 2009 “over payments its bankers allegedly made to people tied to county politicians in order to win business.” According to a Reuters report, at least twenty-two individuals have been convicted on charges of corruption, bribery, and fraud.

So…corrupt county officials and contractors have gone to jail. So…JP Morgan pays a multi-million-dollar fine to the SEC. So what? Does it fix things for all the people in Jefferson County who lost their jobs and health insurance because unethical politicians, contractors, and bankers were made to pay for their crimes? Does it help the poor people who can’t afford to pay their water and sewer bills? Does it help the poorest residents of Birmingham who say they can no longer afford to pay for running water?

One gentleman who lives in Birmingham says he has found it cheaper to purchase water from a gas station and to pay a sanitation company to remove waste from his “porta-potty” than to pay his water and sewer bill—which can amount to $300 some months. One Birmingham woman said that after she pays her water and sewer bill she doesn’t have much money left from her monthly $600 Social Security check to pay for food and electricity.

And so it goes. No help for the poor of Jefferson County. Yet, the wizards of Wall Street who are helping to bankrupt our communities are making a killing!

I’d say we need some REAL financial reform in this country NOW…before we become a third world country. Shouldn’t interest rates swaps and other “exotic financial instruments” be regulated? What do you think?

This is a very important article that you have written. Financial instruments are so complex that most of us cannot wrap our minds around that kind of fraud. I know its very difficult for me. I think that’s part of the reason that explanations such as “people were buying houses they couldn’t afford” sit well with people. Even though it isn’t true or even when it is partly true, that has nothing to do with the financial crisis and subsequent blow up of the economy. We could have paid off everyone’s mortgages by now and been much better off as a nation for it!

Instead what is really happening is the deliberate draining off of public funds to private hands. It is what happened in 08 and it is still happening now. Due to even more rarefied fraud we are due for the next bubble anytime now. The people will be asked again to bail out the fraudsters.

We need immediate criminal prosecutions for fraud. We need civil suits to recover the money and we need actual regulators to enforce existing regulations. These things would all be doable if we had a political class that wasn’t beholden to the very thugs who defrauded our nation and continue to steal from the people.

“According to Taibbi, the original cost for the sewer project was estimated to be about $250 million. That amount was reported to have ballooned into a total indebtedness of $5 billion for Jefferson County over the years. Because of the sewer debacle, the county was not only “saddled with an astronomical debt on its sewer project, it also saw a downgrade in its overall credit rating, which left it paralyzed in its attempts to borrow money to pay for general expenditures.” This is why people’s sewers bills exploded by 400%! This is why the county had to lay off many of its employees—who also lost their health insurance. This is also why Jefferson County had to file for bankruptcy last fall.”

So its the bank’s fault that jefferson county is run by idiots? Maybe if you hadnt allowed them to borrow money on the back of the taxpayer those taxpayers would not have saddled themselves with astronomical debt?

Not only that, but if jefferson county was having to borrow money to cover its general expenditures, then it sounds like they were already in financial trouble. Maybe the culprit here is beaurcrats expanding their short term budget by sticking their constituents with long term unpayable debt.

“We could have paid off everyone’s mortgages by now and been much better off as a nation for it!”

Not only do you leave it completely ambiguous as to who “we” is in that sentence, but you dont even attempt to explain WHY we should be paying off everyone’s mortgage, nor do you try to back up your assertion that buying everyone in america a house would make us all better off.

“Instead what is really happening is the deliberate draining off of public funds to private hands. It is what happened in 08 and it is still happening now. ”

The fleecing of america has been going on for a lot longer than the past 4 years. The bigger problem is, how does any redistribution of resources not fit your definition of “public funds going to private hands” ? Whether you are collecting taxes and bailing out corporations or your handing it over to starving people, at some point those resources reach “private hands”.

I had read of this debacle in an article by Roger Shuler, a reporter and blogger from Alabama. There is so much fraud it is almost incalculable, but in a heavily Republican state, with Bush holdovers in the US Attorney office, there seems to be little incentive to investigate, let alone prosecute, the bankers and their enablers who perpetrated this fraud.

I completely fail to understand the arguments of anyone who blames the victims and defends the banksters. Those are con men of the first order. Another thing I fail to understand is why Alabama voters still vote for the very people who are robbing them blind.

OS,
Calling them con men is an insult to upstanding con men everywhere! When middlemen are actually going to jail we need to follow the money and send a few more up the river. However, what is most important to me is to hit the Banks with larger fines to make the Cities and Counties whole when fraud was present.
Great story Elaine.

“I completely fail to understand the arguments of anyone who blames the victims and defends the banksters.”

The victims are the taxpayers who got stuck with the bill after their elected “representatives” shook hands with the banks and both walked away laughing at those poor saps. If you eliminate the particular bank in this story, any other one can easily take its place. However, if you eliminate the ability of “representatives” to borrow money they will never be personally liable for repayment, the bank then has to convince everyone INDIVIDUALLY to go into that much debt.

Im astounded how people this smart cant put two and two together that if you let people borrow money they dont have to pay back, then of course they arent going to care what happens to it or how much they owe.

“Another thing I fail to understand is why Alabama voters still vote for the very people who are robbing them blind.” (OS)

We have that same phenomena in Ohio. Taft and his buds robbed the state blind … ( http://www.toledoblade.com/coingate ) yet just a few years later the voters returned the republican teabaggers to power and, once again, financial shinnanigans are unfolding.

What country before ever existed a century & a half without a rebellion? & what country can preserve its liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance? Let them take arms. The remedy is to set them right as to facts, pardon & pacify them. What signify a few lives lost in a century or two? The tree of liberty must be refreshed from time to time with the blood of patriots & tyrants. It is its natural manure.
The “Tree of Liberty” letter from Thomas Jefferson to William Smith
A. CHRISTINE C. ANDERSON, ESQ., NEW YORK SUPREME COURT ATTORNEY WHISTLEBLOWER TESTIMONY REVEALS A CRIMINAL RICO CARTEL COUP D’ÉTAT ON GOVERNMENT AT THE HIGHEST OUTPOSTS OF LAW AND REGULATION

NEW YORK SUPREME COURT WHISTLEBLOWER ATTORNEY, CHRISTINE C. ANDERSON, ESQ. (“Anderson”) MAKES FELONY CRIMINAL ALLEGATIONS IN US FEDERAL COURT AND BEFORE THE NEW YORK SENATE JUDICIARY COMMITTEE. ALLEGATIONS AGAINST SENIOR RANKING OFFICIALS OF THE US ATTORNEY’S OFFICE, THE NEW YORK ATTORNEY GENERAL’S OFFICE, THE DISTRICT ATTORNEY’S OFFICE, THE NEW YORK SUPREME COURT, THE NEW YORK SUPREME COURT DISCIPLINARY DEPARTMENTS, “FAVORED LAWYERS AND LAW FIRMS ” AND NAMES A “CLEANER” , AS REVEALED IN FEDERAL COURT TESTIMONY, A ONE NAOMI GOLDSTEIN. THESE ALLEGATIONS DEMAND IMMEDIATE REPORTING, INVESTIGATION AND HALTING OF THE LEGALLY RELATED IVIEWIT RICO & ANTITRUST LAWSUIT IN ORDER TO BEGIN INVESTIGATIONS TO IDENTIFY AND PROSECUTE THOSE FINGERED BY WHISTLEBLOWER ANDERSON and OTHERS.
The “Legally Related” Federal Lawsuit of New York Supreme Court Veteran Senior Supreme Court Disciplinary Department Attorney and Expert in Attorney Criminal Misconduct Complaints, Whistleblower Christine Anderson, Esq., by Federal Judge Shira Anne Scheindlin to this RICO & ANTITRUST Lawsuit, exposes from the inside, a legal conspiracy of corruption involving the highest levels of Regulatory, Prosecutorial and Judicial Public Offices both State and Federal. Heroism is a word earned through action. The Whistleblowing Efforts of Anderson, another New York Supreme Court Attorney Whistleblower and Hero, Nicole Corrado, Esq., and, a Sitting New York Supreme Court Justice, Honorable Duane A. Hart, Esq., all cited herein, should be the Moniker of HEROISM for others in the legal profession to follow.
These Whistleblowers Expose Corruption at the Top of Government, including the Courts, this Court, the Department of Justice, the New York Attorney General and others. They further provide the World with an understanding of how America’s Financial System has melted top down, from rigged economic breakdowns and controlled demolition of world markets through fraud, with no Regulators or Prosecutors or Courts to stop it, in fact, all of them Aiding and Abetting the crimes. Nobody attempting to RECOVER the stolen funds for the PEOPLE, as all of the Top Government Officials charged with enforcement of the Law, appear on the take and part of the crimes according to these Whistleblowers. These Whistleblowing efforts expose how and why no one on Wall Street/Greed Street/Fraud Street has been charged with Criminal Acts, despite massive and overwhelming evidence of CRIMINAL ACTS and FRAUD. Further exposed, is why none of the Stolen Loot from these Economic Crimes have been recovered back to the People. What is unveiled is a COUP D’ÉTAT on the HIGHEST OUTPOSTS OF LAW & ORDER in the United States and yet not a single story in the Mainstream Media aka US Pravda Press, regarding these shocking allegations by inside Whistleblowers.
Exposed by these HEROIC WHISTLEBLOWING EFFORTS is a REVOLVING DOOR between a LICENTIOUS GROUP OF LAW FIRMS and ATTORNEYS AT LAW, acting in both PRIVATE PRACTICE and PUBLIC OFFICE, working together in CONSPIRACY and forming a RICO CRIMINAL ORGANIZATION with tentacles embedded at the highest outposts of the US Government in order to OBSTRUCT JUSTICE for the CRIMINAL ENTERPRISE. Anderson, Corrado and Other Public Office Whistleblowers cited herein, also provide explanation for why Judges and Attorneys at Law are now desperately trying to grant themselves immunity for felony crimes and attempting to use the State Attorney General Offices and other Government officials as accomplice in the cover-up. Immunity for ATTORNEYS AT LAW for their role in TORTURE CRIMES, WAR CRIMES and ECONOMIC CRIMES, crimes that include the CREATION OF ILLEGAL/FRAUDULENT FINANCIAL & INSURANCE CONTRACTS that led to the RIGGED HOUSING and MARKET COLLAPSES, that led to MILLIONS OF VERY ILLEGAL FORECLOSURES and left MILLIONS UNEMPLOYED AND STARVING. Seeking immunity for crime, as a legal defense is both futile and an obvious admission of guilt, which will never hold in a fair and impartial court of law? The attempts to gain immunity for FELONY CRIMINAL ACTS shows culpability in the crimes, exposing fear by the guilty of retribution of the day when the “long arm of the law” swings back. Fear that they will hang for their crimes against Humanity, their War Crimes (Illegal Undeclared Wars of Aggression, Torture, Misappropriation of Public funds by Congress for Undeclared Wars, Economic Terrorism and more) and they must hope for dirty courts to clear them forever.
Whistleblowing comes at a price to Whistleblowers in this new environment of a CRIMINAL GOVERNMENT. Christine Anderson, Corrado, Hart and others, including PLAINTIFF have been through hell to bring this INFORMATION TO LIGHT and where this Court should acknowledge Anderson, Corrado and the others who have come forth for their HEROISM, suspiciously, they do not. These are TRUE AMERICAN PATRIOTS, HEROES and ROLE MODELS OF ETHICS shunned by the very legal system they work in. We instead find this Court currently attempting to ILLEGALLY DISMISS Anderson’s WHISTLEBLOWER Lawsuit and the “legally related” cases prior to investigations and hearings of the criminal acts exposed by government officials against other Senior Ranking Officials.
We find THIS COURT attempting to BURY THE FELONY CRIMINAL ALLEGATIONS AGAINST FEDERAL AND STATE AGENCIES EXPOSED BY CREDIBLE WITNESSES in a FEDERAL COURT by “SWEEPING THEM UNDER THE RUG,” PRIOR TO INVESTIGATIONS REQUIRED BY LAW, as more fully defined herein. Therefore, Plaintiff starts this Motion in HONOR. A TIP OF THE HAT TO THE TRUE PATRIOTS NAMED HEREIN AND THEIR HEROIC WHISTLEBLOWING EFFORTS TO BLOW THE LID OFF ONE OF THE LARGEST CORRUPTION STORIES OF ALL TIME, PLACING MEMBERS OF THIS COURT RIGHT IN THE CENTER OF WORLD MARKET FRAUD AND MORE, A ROOT OF THE PROBLEM.

Anderson’s Whistleblowing CRIMINAL ALLEGATIONS reveal a MASSIVE GOVERNMENT CORRUPTION, exposing a NETWORK OF CRIMINAL ACTIVITIES/ATROCITIES operated by a CRIMINAL RICO ORGANIZATION inside Government, effectively creating a subterfuge to law. The RICO ENTERPRISE is comprised mainly of Powerful and Influential Law Firms, Attorneys at Law, Lawmaker Politicians, Public Officials and Judicial Officials, according to these Whistleblowers. Together, acting in Conspiracy, these trusted officials all abuse their legal degrees and positions in TOP OUTPOSTS OF LAW in order to aid and abet the commission and cover-ups of COMPLEX ILLEGAL LEGAL CRIMES, including directing operatives in various government capacities to subterfuge and subvert Law, Regulation and Justice to prevent prosecution.
According to Anderson, operatives of the CRIMINAL RICO ORGANIZATION, include but are not limited to, SENIOR STATE and FEDERAL PUBLIC OFFICIALS, almost all with legal degrees, operating inside US Government Agencies, including the courts and prosecutorial offices, DISABLING JUSTICE and REGULATION, and opening the door for the RICO Enterprise’s COMPLEX ILLEGAL LEGAL CRIMES to proceed. Illegal Legal Crimes packaged and rolled out by ATTORNEYS AT LAW that all are currently contributing to the INTENTIONAL Bankrupting of World Markets through a series of sophisticated frauds.
Examples of these frauds, include but are not limited to, FRAUDULENT SUBPRIME MORTGAGES, FRAUDULENT COLLATERALIZED DEBT OBLIGATIONS (CDOs), FRAUDULENT DERIVATIVES, FRAUDULENT INSURANCE CONTRACTS, FRAUDULENT TARP FUNDS and VIOLATIONS OF ANTITRUST LAWS. Where all of these FRAUDS require superior knowledge of Law, the type only LICENSED ATTORNEYS AT LAW posses. The Criminal Operatives, disguised as ATTORNEYS AT LAW with LEGAL DEGREES, are nested deep inside Government at Key Posts, in order to COVER-UP the CRIMINAL RICO ORGANIZATION’S ILLEGAL LEGAL CRIMES. The Operatives now are deeply embedded in the United States and New York regulatory agencies, prosecutorial agencies and courts, at the highest levels, as revealed by Anderson and others. Here comes a political scandal on an International Scale to make Boss Tweed’s New York Tammany Hall look like a Juvenile Delinquency robbing of the cookie jar.

ekeyra,
Why don’t we make the Banks pay back all of the money that they
” borrowed” from the Fed at ridiculous interest rates not to mention how much they lost the economy? If they don’t have to pay it back why should the middle class?

First, I never said, nor do I think any rational person can say that financial problems began in 2008.

I did assume you knew we were, as taxpayers, on the hook for at least 23 trillion (that we know of). There was a problem with fraudulent mortage making on the part of banks. They falsified income and changed the terms of the loans at closing along with many other criminal actions. The FBI warned of these types of fraud at least as early as 2004. No corrective, ie: law enforcement action was taken.

Now we come to what happen to these fraudulent as well as completely legal housing loans. These loans were bundled and sold off as AAA securities. People who knew this was bull shit, such as GS, sold them as AAA securities and also bought insurance for when they failed, because they knew full well they would fail. Thus, my point is, the bailout gave people money for engaging in multiple criminal fraud. If we were going to hand out 23 trillion dollars we could have paid off the original fraudulent mortgages and most of those people would have spent the money in ways that could have kept the economy afloat.

I am not saying that a consumer society is a healthy society, far from it. But the disaster we faced in 2008 would have been averted had we given the money straight to homeowners.

Tax money is in fact going to private groups. This has been a disaster for our nation. I understand you do not believe there should be any form of govt. I can’t argue that point with you except to say we differ on that issue.

I think it is important to work together as a society for each other’s common good. I do not resent paying taxes so that people can have education, healthcare, social security, disability, environmental quality, roads and infrastructure, etc. I do resent paying taxes into private military and banking industry coffers.

The way to deal with corruption in office is a people’s movement. Until people who have committed crimes are voted out of office they will continue to protect criminals in private industry. I therefore refuse to vote for a person who has committed war and financial crimes for political office.

In the aftermath of the financial crisis back in 2008, a number of conservative commentators—including Mike Huckabee and Neil Cavuto—blamed minorities and low income people for the subprime mortgage mess. According to some of these conservatives, the responsibility for the mortgage mess lay at the feet of the Community Reinvestment Act and the poor/minorities among us who took out subprime mortgages. There didn’t seem to be any mention of banks and their predatory lending practices being at fault in any way.

Well, James Theckson, a former banker who was a regional vice president for Chase Home Finance in southern Florida, claims that banks are mostly culpable for the subprime mortgage fiasco. He told Nicholas Kristof of the New York Times that his team wrote $2 billion in mortgages in 2007—and that some of them were “no documentation” mortgages. Theckson said, “On the application, you don’t put down a job; you don’t show income; you don’t show assets. But you still got a nod.” He continued, “If you had some old bag lady walking down the street and she had a decent credit score, she got a loan.”

I read about that. People also had their interest rates put from prime to sub-prime rates at the closing. They were threatened with legal action if they didn’t go ahead and close. This is a real threat because a seller can take legal action against a buyer for failure to complete the contract. At higher rates, the payment was more than people could afford.

“So its the bank’s fault that jefferson county is run by idiots? Maybe if you hadnt allowed them to borrow money on the back of the taxpayer those taxpayers would not have saddled themselves with astronomical debt?

*****
Did I say it was the bank’s fault that Jefferson County was run by idiots?
The title of this post is “How the Bankers of Wall Street Are Helping to Bankrupt America.” I think I showed how that is happening.

Some questions for you:

– If the bankers didn’t provide money to middlemen to bribe county officials, do you think Jefferson County and its residents would be facing the financial problems they are today?

he talks a good game, but he going to be up against some strong players with lots of money and influence. obama and holder both will have to back him up and his appointment will have to go through the courts.

It’s no mystery why this has been going on for generations, when coupled with the fact that corporations are given free rein to corrupt our election process.

Non-living legal constructs that are solely motivated by greed, and driven by their charters to create profits by any means necessary, work as hard as they can to deceive the gullible wherever they can find them. This includes dumping large sums of money into campaigns to ensure the elections of their puppets, or those they know to be sufficiently naive as to do their bidding, and it includes bribery and fraud and blackmail and any other tools they choose to use. Coupled with the near lack of any significant penalties when caught, it makes business sense to operate in this manner.

Expecting a different outcome from these collective inputs is what is really naive (and I don’t mean you, Elaine, but rather those who persist in blaming the patsies for being taken in by such scams).

There will always be sociopaths, and they are concentrated in the finance industry. Sociopaths do not care anything about the outcome, other than that they profit from it. This is the M.O. of those perpetrating these scams against the people.

Has anyone else noticed how much more of their daily lives are consumed just trying to avoid being screwed out of what little they still have? The average person does not have a chance when up against professional criminals–and that is what our finance system has become.

Is it any wonder the finance industry has been such a foe of the CFPB? They want to keep their position at the top of the heap by continuing to screw anyone who comes within their sight!

Fighting this enduring battle is the very reason for regulation in a civil society, and we are seeing what happens when regulations are gutted and/or ignored; the sociopaths will always win.

Former Jefferson County Commissioner Gary White was sentenced today to serve 10 years in prison in connection with the county’s massive sewer project…

White is the last to be sentenced among 21 people and five companies convicted in connection with two federal probes into the construction and financing of the sewer system project. Also convicted in the probes were former Jefferson County commissioners Larry Langford, Chris McNair and Mary Buckelew.

Jefferson County should have declared bankruptcy back in 2008. Instead, government continued to screw with local fees further robbing citizens who could ill afford it. I expect that some of them may have even been cut off from water and sewer services in the process.

JP Morgan is hardly the only guilty party here.

What is the cure for corrupt government? Ever more government and government regulators?

Excerpt:
The SEC last week announced that Anne Small will serve as the SEC’s new deputy general counsel. Small worked in Wilmer Hale’s litigation department before snagging this post. She’ll be replacing Mark Cahn, who worked at – wait for it – Wilmer Hale for 20 years, until joining the SEC last March, when he stepped in to work for a fellow named Andrew Vollmer, who had served as the SEC’s Deputy General Counsel since 2006. Cahn will now be kicked upstairs into the General Counsel spot.

But guess who his predecessor Vollmer worked for? That’s right, Wilmer Hale. So a Wilmer lawyer comes in to replace a Wilmer lawyer, who replaced a Wilmer lawyer. Hence the firm’s nickname – “SEC West.”

Besides Cahn and Small, there are other ex-Wilmerites at the Commission. There’s Joseph Brenner, the chief counsel of the Enforcement Division, and Meredith Cross, who heads the Division of Corporate Finance. Both were Wilmer partners.

Of course it’s not like the traffic doesn’t go in both directions. Last year the SEC’s head of trading and markets, Daniel Gallagher, left to become a Wilmer partner. And the SEC’s former Director of Enforcement William McLucas is now the head of Wilmer’s securities department. The firm hired the head of the SEC’s Los Angeles office, Randall Lee, in 2007. And so on and so on.

Exactly how tough do you think all these ex-Wilmer lawyers will be on current Wilmer clients like Goldman, Citigroup, Morgan Stanley, General Electric, Credit Suisse, and practically every other major financial services company? The shamelessness factor is growing by the minute.

My group, the Cult of the Fifth Grade, met after class to discuss a local issue about sewer rate increases. We have developed a device for home owners who live near woods–the woods have to be behind the house or on either side and be sixty feet deep. This eliminates the need for the sewer bill. One sits in the dental chair on the patio surrounded by a nice warm screen in cold weather. One emits the poo poo into the porta potty. Then the catapault comes into play. The lid is tipped up out of the way and the slingshot is activated sending the load off into the woods. The direction is moved ever so slightly after each sitting. We will post the photo on this blog when the patent application is complete. PoopBeGone.

Ekeyra writes: “Not only that, but if jefferson county was having to borrow money to cover its general expenditures, then it sounds like they were already in financial trouble. Maybe the culprit here is beaurcrats expanding their short term budget by sticking their constituents with long term unpayable debt.”

Apparently Ekeyra doesn’t realize that if you don’t borrow to finance infrastructure, then you have to finance with higher taxes; and you can only finance with higher taxes if capital costs (infrastructure) is part of the regular budgeting process. Which, actually, a lot of state and local governments don’t allow; their regular budgeting process involves operational costs only and they require capital projects (such as sewer building) to be financed separately through bonds and borrowing. It helps if you actually know something about the process before you start ranting.

“Why don’t we make the Banks pay back all of the money that they
” borrowed” from the Fed at ridiculous interest rates not to mention how much they lost the economy? ”

This is kind of a tricky question. The long and short of it is, the fed never had money to loan, they simply created “liquidity” by literally adding a few zeros to the end of Too Big To Fail accounts. Same thing will happen if there is ever a bank run and the FDIC steps in to “insure” deposits. So its hard to advocate the banks giving back money they never had to a federal reserve bank that never actually had it, and counterfieted whatever funds they did loan out. If restitution is truly the goal then the entire operation should be audited and dismantled immediately. It will not make whole the loss of purchasing power of the dollar but at least it will stop future theft and fraud of the massive scale the fed is capable of now.

“If they don’t have to pay it back why should the middle class?”

Taxpayers of any class should not be on the hook for the bad behavior of failed businesses. Constructing a financial system where the risk takers can keep their profits and subsidize their losses is the very defintion of moral hazard. Risk taking increases exponentially because if you win you get to keep it, and if you lose, hey no big deal the fed or those taxpayer suckers will bail you out.

“Did I say it was the bank’s fault that Jefferson County was run by idiots?”

No you did not, i just thought it was worth mentioning since they were the ones agreeing to put taxpayer money on the line to finance a sewer at an outrageous cost.

“The title of this post is “How the Bankers of Wall Street Are Helping to Bankrupt America.” I think I showed how that is happening. ”

I agree, I simply felt like pointing out who it was they were helping. Maybe “How wall street is helping government beauracrats loot taxpayers.” ?

Some questions for you:

– If the bankers didn’t provide money to middlemen to bribe county officials, do you think Jefferson County and its residents would be facing the financial problems they are today?

Perhaps not of the same scale, but i have little faith in beauracrats. They do not have the ability to collect the information needed to make sound economic calculations. Refer to F.A. hayeks work on decentralized knowledge. He won one of those nobel things they like to give out as bad jokes.

– Do you think the bankers are blameless?

Of course not. They’re depraved parasites. However to go back to your previous question and address your next one at the same time, if there were no county officials with political power, especially the power to indebt taxpayers, there would be noone for the banks to bribe. The only course of action, absent political power is to address everyone individually and convince them they really needed to go into massive debt to continue removing their bodily wastes. I think most people would not have come to the conclusion that it was in their best interest.

– Do you approve of bankers bribing government officials?

If banks or anyone for that matter decide that the rewards from bribing someone is worth more than what they are offering as a bribe and the risk involved, it will happen regardless of my approval. It is an economic transaction, it may not be moral or legitimate but that is just the reality. It is a purchase of political favor at the expense of taxpayers, but if there is no accumulation of political power to decide who and what taxpayers are economically beholden too, and no favors to hand out, there will be no gatekeeper of public coffers to bribe.

“Thus, my point is, the bailout gave people money for engaging in multiple criminal fraud. If we were going to hand out 23 trillion dollars we could have paid off the original fraudulent mortgages and most of those people would have spent the money in ways that could have kept the economy afloat. ”

My point is that those financial firms and the federal reserve itself was “engaging in multiple criminal fraud” in their day to day operations since the establishment of the federal reserve. The problem is the federal reserve’s interest rate manipulation and credit expansion through fractional reserve banking wrecks everyone ability to make economic calculations. So no handing out money to people who couldnt afford the homes they bought would not have saved us from the crisis we faced.

However, should you float the idea that people should get to keep the homes they purchased from banks that engaged in so much fraud that the unmitigated clusterfuck of “robo-signing” defaults is next to impossible to legally untangle, I probably wouldnt be opposed to that. The case for ownership going to the bank that lent out money it never had is less than rock solid.

“I understand you do not believe there should be any form of govt. I can’t argue that point with you except to say we differ on that issue. ”

At least thats probably the most polite way ive been disagreed with on that issue.

Excerpt:
JPMorgan Chase & Co. (JPM)’s Charles LeCroy said the key to landing bond deals in Jefferson County, Alabama, was finding out whom to pay off. In one example, that meant a $2.6 million payment to Bill Blount, a local banker and longtime friend of County Commissioner Larry Langford.

“It’s a lot of money, but in the end it’s worth it on a billion-dollar deal,” LeCroy told a colleague in 2003, according to a complaint filed by the Securities and Exchange Commission.

That’s because in the $2.9-trillion market for state and local government debt, where 80 percent of all financings are negotiated in private, conflicts of interest prevail. While Langford and Blount are in jail, LeCroy is fighting an SEC action. JPMorgan, which provided most of the toxic debt that devastated Jefferson County, has suffered no loss of business as the nation’s third-largest underwriter of municipal bonds, according to data compiled by Bloomberg.

Just 21 months ago, JPMorgan agreed to a $722 million SEC settlement to end a case over secret payments to friends of Jefferson County commissioners. The financings arranged by JPMorgan, a package of floating-rate debt and derivatives, exposed taxpayers to the 2008 credit crisis and dealt a blow that may lead the county to approve the biggest U.S. municipal bankruptcy as soon as today.

“As an outsider looking in, it just certainly appears to me that JPMorgan ravaged this county,” said Robert Brooks, a finance professor at the University of Alabama in Tuscaloosa and the author of a textbook on derivatives. “They convinced Jefferson County to pursue a strategy they never would have followed to generate a lot of fees.”

Excerpt:
It has been established in various courts that bank officials literally bribed Jefferson County Commissioners to refinance using outrageously expensive interest rate swap deals, but despite a number of convictions of local pols like former Commissioner Larry Langford (who got 15 years for accepting bribes), Jefferson County will still be stuck paying this tab for the next gazillion years.

All of which sucks, of course, but the news keeps getting worse. The House Financial Services Committee has just voted to delay the scheduled implementation of reforms in the Dodd-Frank bill that would limit the ability of banks to pull Jefferson-County style scams in the future. Among other things, the new rules would have required banks to act in the best interests of their clients, and disclose daily pricing information about swaps, making it harder for banks to gouge clients.

In Jefferson County, the Alabamans were massively overcharged by Chase and other banks in large part because interest rate swaps, unlike, say, stocks, are not traded on open exchanges, so nobody knows how much they really cost. The situation is similar to what sports betting would be like if casinos did not publish the point spreads. If you walk into a casino the day before the Super Bowl and you’re told the spread is Green Bay -6, you might think you’re getting a good deal – but the actual spread might be nine or ten points. Wall Street is making a killing similarly overcharging states and cities and counties (and even countries like Greece) for interest-rate swaps, regularly stealing half a touchdown here and there in these billion-dollar finance transactions.

The Dodd-Frank bill, ball-less as it mostly was, did have a few provisions in it that would have tightened up the rules governing such derivative transactions. But the House Financial Services Committee voted to stall implementation of these new rules until September 2012, at the very least. The cruel irony here is that the Committee is chaired by… Jefferson County’s own congressman!

Excerpt:
Washington, D.C., Nov. 4, 2009 — The Securities and Exchange Commission today charged J.P. Morgan Securities Inc. and two of its former managing directors for their roles in an unlawful payment scheme that enabled them to win business involving municipal bond offerings and swap agreement transactions with Jefferson County, Ala. This is the SEC’s second enforcement action arising from Jefferson County’s bond offerings and swap transactions.

*****
J.P. Morgan Securities settled the SEC’s charges and will pay a penalty of $25 million, make a payment of $50 million to Jefferson County, and forfeit more than $647 million in claimed termination fees.

The SEC alleges that J.P. Morgan Securities and former managing directors Charles LeCroy and Douglas MacFaddin made more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners. The friends owned or worked at local broker-dealer firms that performed no known services on the transactions. In connection with the payments, the county commissioners voted to select J.P. Morgan Securities as managing underwriter of the bond offerings and its affiliated bank as swap provider for the transactions.

J.P. Morgan Securities did not disclose any of the payments or conflicts of interest in the swap confirmation agreements or bond offering documents, yet passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions.

“The transactions were complex but the scheme was simple. Senior J.P. Morgan bankers made unlawful payments to win business and earn fees,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

Excerpt:
Though the county no longer has to pay fees to JPMorgan — the bank agreed to void the swaps as part of a settlement with the Securities and Exchange Commission — its bond debt for the sewers now totals almost $4 billion. The Birmingham News described Jefferson County as a “poster child” for all that can go wrong when municipalities start playing with unregulated derivatives peddled by Wall Street sharpies.

Has Spencer Bachus, as the local congressman, decried this debacle? Of course — what local congressman wouldn’t? In a letter last year to Mary Schapiro, the chairwoman of the S.E.C., he said that the county’s financing schemes “magnified the inherent risks of the municipal finance market.” (He also blamed, among other things, “serious corruption,” of which there was plenty, including secret payments by JPMorgan to people who could influence the county commissioners.)

Bachus is not just your garden variety local congressman, though. As chairman of the Financial Services Committee, he is uniquely positioned to help make sure that similar disasters never happen again — not just in Jefferson County but anywhere. After all, the new Dodd-Frank financial reform law will, at long last, regulate derivatives. And the implementation of that law is being overseen by Bachus and his committee.

Among its many provisions related to derivatives — all designed to lessen their systemic risk — is a series of rules that would make it close to impossible for the likes of JPMorgan to pawn risky derivatives off on municipalities. Dodd-Frank requires sellers of derivatives to take a near-fiduciary interest in the well-being of a municipality.

You would think Bachus would want these regulations in place as quickly as possible, given the pain his constituents are suffering. Yet, last week, along with a handful of other House Republican bigwigs, he introduced legislation that would do just the opposite: It would delay derivative regulation until January 2013.

It is hard not to see this move as an act of hostility toward any derivative regulation. After all, by 2013 a presidential election will have taken place, and if the Republicans take the White House and the Senate, one can expect that the next step would be to roll back derivative regulation entirely. Even if it is just about delay, rather than outright obstruction, that means the Republicans are asking for two more years during which the industry will add trillions of dollars worth of “financial weapons of mass destruction” (to use Warren Buffett’s famous description) to the $466.8 trillion of unregulated derivatives already in existence. How can this possibly be good?

Fabulous post particularly because concentrating it on one locality helps clarify the issue in its macrocosm. This has been going on for years across the country and represents a long history of fraudulent activity by the banking industry directed at State and Local governments.

“What tends to mystify me is that this has been going on for generations, but our society seems to have some sort of amnesia about it.”

Dredd is totally correct about this being a long term practice where these scams have been run by financiers, in close relationship to municipal officials.
“The Power Broker: Robert Moses and the Fall of New York”, by Robert A. Caro http://en.wikipedia.org/wiki/The_Power_Broker is an incredible book which lays out the infrastructure corruption rotting New York that began with the ascension of this evil man to power in the 20’s. While this book magnificently explains the machinations used to turn “public works” into profit centers to the detriment of citizens, the corruption it details is in fact country-wide.

What we see today with the 40 years of conservative propaganda that has made taxation seem akin to robbery, is that States and municipalities have to use elaborate “schemes” to finance needed infrastructure improvements. The willing corruption of local politicians works hand in glove with the financial con-men in providing services that are overpriced and whose reckoning is put off until later dates.

It seems to me this problem is with the county government. If I remember the story, they ran into cost overruns because of corruption between the contractors and the county government members. They ran to wall st. to fix their monumental screw-up.

Most of the elected government officials in this country along with the general population know nothing about money and finance. If sound economics were taught in public schools starting in 6th grade, I dont think we would have these problems.

You cannot spend what you dont have. We should learn to either pay cash or do without. And savings should begin as soon as we start having an allowance so that saving becomes a habit.

Too bad your memory is always distorted by your Objectivist religion and ridiculous non-scientific Austrian School economics (also a religion). Another argument that the finance people “know better” than everyone else too. So I guess that means they should be in charge; an oligarchy/plutocracy. Utter fucking nonsense. Debt can be a useful tool, but unfortunately the financial services community has figured out that it is a tool that can be turned on a user to politically gain control of the user. But thanks for your paternalism, Bron. Too bad for you, you and the financial industry aren’t our collective parents. If they don’t want to lend the money because of risk? More power to them. But to make arguments that they should have control because “they know better”? Is anti-democratic idiocy.

In an earlier comment, I provided a link to a summary and explanation of the Jefferson County sewer financing debacle. I’ve posted an excerpt from it below. Of course, the corrupt county officials and contractors are to blame for the bankrupcty of Jefferson County–and so are the unethical bankers from JP Morgan who bribed them.

In 2003, Jefferson County, Alabama, sold bonds to refinance the debt on its sewer system. The county commissioners followed the advice of a consultant working for J.P. Morgan and set up an unorthodox financing scheme using adjustable interest rates, with no competitive bidding. The county paid $120 million in fees — six times the prevailing rate – to buy interest-rate swaps from J.P. Morgan, Bank of America, Lehman Brothers and Bear Stearns.

Within five years, the bad advice had increased the county’s debt by $277 million. Low- income residents bore the consequences as the county raised sewer rates again and again to stave off bankruptcy.

According to the New York Times: “The bonds and debt restructuring destabilized the finances of the county, which includes Birmingham, and its sewer system, helping to push the county to the brink of bankruptcy.”

Birmingham Mayor Larry Langford, was convicted in October 2009 of accepting cash, clothing and jewelry when he was president of the county commission, in exchange for steering business to J.P. Morgan.

On Nov. 4, 2009 the Securities and Exchange Commission charged in a lawsuit that J.P. Morgan arranged for illegal payments to consultants tied to the county commissioners, in an effort to win the profitable business selling the county bonds and trading in derivatives. To settle, J.P. Morgan dropped its claim for $647 million in termination fees it had been demanding from the county to unwind the interest-rate swaps, and agreed to pay $25 million in penalties to the SEC and $50 million to Jefferson County “for the purpose of assisting displaced County employees, residents, and sewer ratepayers.”

The former J.P. Morgan managing directors have denied any wrongdoing and their case is expected to go to trial. The SEC is currently pushing for a uniform federal standard defining improper activity in this area, since current standards vary state by state, and has implemented its own new rules to control pay-to-play abuses.

Key Issues

By recommending financial deals that were lucrative for themselves and other bankers, the consultants greatly increased the costs to the county. Officials of many other municipalities around the country also relied on investment advice to get involved in financing schemes they poorly understood before the 2008 financial meltdown.

The illegal payments made by J.P. Morgan to ensure its noncompetitive monopoly on the county’s business represents a classic example of pay-to-play corruption.

Didn’t you know that corporate bribery is a great American tradition? Only the people who accept bribes are at fault–never the wealthy bribers who wear thousand-dollar suits and Rolexes and have lobbyists in Washington, DC.

For months, Republicans have been trying to undermine the Dodd-Frank financial reform law — passed in an attempt to prevent a repeat of the 2008 financial crisis — by cutting budgets for market regulators, obstructing nominees, and advancing bills that would weaken the law’s key provisions. But sometimes efforts to dismantle the law take on a more bipartisan flavor.

One of the key sections of the Dodd-Frank law has to do with swaps, the complex financial instruments that felled, among others, insurance giant American International Group. Before the 2008 financial crisis, the swaps market was totally opaque, giving neither customers nor regulators any sense of what the instruments actually cost or how much risk was building up in the financial system.

Dodd-Frank brings transparency to this market by forcing swap trades onto open exchanges — where they can be seen by everyone — rather than allowing backroom wheeling and dealing in the instruments to continue. But a bill authored by Reps. Scott Garrett (R-NJ) and Carolyn Maloney (D-NY), as the New York Times’ Gretchen Morgensen explained, would take these bits of the bill out at the knees:

Representative Scott Garrett , a New Jersey Republican, has teamed up with Representative Carolyn B. Maloney, a New York Democrat, to introduce the Swap Execution Facility Clarification Act. It would bar the Securities and Exchange Commission and the C.F.T.C. from requiring swap execution facilities to have a minimum number of participants or mandating displays of prices. Both mechanisms promote transparency.

Mr. Garrett said the bill directed regulators “to provide market participants with the flexibility” they need to obtain price discovery. This means maintaining the old system that can keep prices in the shadows.

On Nov. 15, a House subcommittee approved the bill by a voice vote.

As Commodity Futures Trading Commission Chairman Gary Gensler — whose agency is charged with regulating swaps under Dodd-Frank — explained, “economists for decades have shown that transparency lowers margins, leads to greater liquidity and more competition in the marketplace.” “Transparent pricing is also a critical feature of lowering the risk at the banks, and at the derivatives clearinghouses as well,” he said.

As David Min and I explained back in April, 2010, opacity in the swaps market “means that no one — regulators, investors, or even the dealers themselves — has a good handle on the systemic risk these instruments pose, or who is bearing the risk. This prevents regulators from being able to take steps to reduce systemic risk and creates the conditions for financial panics.” Dodd-Frank did a lot to deal with this problem, but Congress now seems to be aiming to undo that progress.

“But to make arguments that they should have control because “they know better”?”

That is just plain baloney. I never made that argument and wouldnt. You are making that argument.

And as far a paternalism? Teaching finance and economics makes a lot more sense than teaching sex-ed. For christ sake, the little kids are there because their parents know a little something about sex. Most people dont know much about finance. As evidenced by your many posts on the subject.

That’s why these services should be left to the private sector, if this was a company, it would go bankrupt and another financially responsible company would buy up the valid assets. The jobs may change hands may pay more or less but there would not be the inherent moral hazard that govt’s have when they control services. The incentives are only to line pockets and get re-elected there is no concern for the public, and because it isn’t a private company there are no concerns for ensuring the service is financially feasible. People should not blame bankers for trying to make money, this is life, it is the state, federal and local politicians that believe it is a proper role of govt to provide services to the public which in virtually all cases it is not.

Dave S.,
That is just wrong. The services provided by many Government agencies rivals and exceeds profit driven corporations. Medicare is just one prime example of that. The financial markets didn’t fix themselves by going out of business, but instead demanding federal bailouts and secret loans that helped crash the economy. This bill that was being discussed is an attempt to reduce the effectiveness of the Dodd-Frank bill.

I would argue that virtually all govt programs are bankrupt, social secuity being a prime example. The notion that it is more cost feasible to have govt run services is fool hardy at best. There is no competition which is what drives costs down, cell phones and televisions continually get cheaper and better. Because govt’s only compete with itself there is no incentive to lower costs. Govt unions continually push wages and costs up because monopolies have no competitors, I would say this is economic law. I would agree there is room for some gov’t services, roads, police lisceningaybe a few others. But as I said with no competition costs will only rise and servies rarely improve.

As for Dodd Frank it’s just more beauracracy, which considering the financial state of the US is blatantly unessecary. The idea that we can simply pass more and more laws to combat every issue is misguided. Fraud and bankruptcy laws are on the books, new laws are rarely needed. If the govt didn’t privatize profits and socialize losses as it did these financial companies would have gone bust and the economy would have likely corrected by now. However because of the govt’s role has become so massive in the economy these proper corrections are not happening, it’s beauracracy that’s the problem, not the private sector.

Actually you did make that argument by implication. You did it when you said “Most of the elected government officials in this country along with the general population know nothing about money and finance” the implication being that government should be run by people who understand finance because they are allegedly financial professionals. Financial professionals such as Henry Paulson and Lil’ Timmy – the champions of socialized losses/private profits and “Too Big to Fail”. See, that’s the thing about speaking without thinking, Bron. You invite unintended consequences.

Don’t go getting your knickers in a twist. I was expressing my own opinion on the subject. If you want your water and sewer and other essential services provided by a private company, I’d suggest you go hire one that will do that for you.

Excerpt:
AMID all the talk of debt and default in Washington last week, tiny Central Falls, R.I., went bankrupt.

Like many states and cities in these hard economic times, Central Falls — population: 19,000 — was caught short by hefty pension obligations and weak tax revenue. It may not be the last municipality to file for bankruptcy. Jefferson County, Ala., is now on the brink of it, thanks to a sewer bond issue gone wildly bad.

But while pensions and the economy are behind many of municipalities’ troubles, Wall Street has played a role, too. Hidden expenses associated with how local governments finance themselves are compounding financial problems down at city hall.

Wall Street banks have peddled to municipalities all sorts of financial products, some of which have turned out to be costly mistakes. Testifying on July 29 at a public hearing on municipal securities sponsored by the Securities and Exchange Commission, Andrew Kalotay, an expert in financial derivatives who runs a debt management advisory firm in New York, asserted that poorly structured financial transactions involving bonds and derivatives known as interest rate swaps represented “Wall Street’s multibillion-dollar hidden tax on Main Street.”

Mr. Kalotay is talking about a type of complex financing that big banks have pushed on state and local authorities in recent years. The arrangements are typically made when borrowers want to exchange variable-rate debt for fixed-rate obligations.

These deals are lucrative for the banks, but many of the issuers don’t seem to understand them. Mr. Kalotay told the S.E.C. that excessive fees charged by banks had cost issuers, and therefore taxpayers, $20 billion over the last five years. Real money, in other words, that could have been used in other ways by states and towns short on cash.

There’s much for banks to love about these deals. Because there is no central market for interest rate swaps, prices of swaps are shrouded in secrecy. Banks can mark up costs significantly, often without their clients’ knowledge.

Banks offering such deals can act as both adviser and counterparty to borrowers, putting the banks in direct conflict with their customers. And under agreements governing many of these swaps, borrowers that want to unwind these deals must go back to the banks that created them, putting the issuers at a disadvantage.

The costs of unwinding swaps can be onerous. Banks justify their fees by saying they are exposed to credit risk. But Mr. Kalotay asked, “What is the justification for a high margin on unwinding, when credit risk is nonexistent?”

Another plus for the banks is that they book immediately the entire amount earned over the life of the swap; salespeople working on the deals receive bonuses — typically 10 percent — on these windfalls.

Excerpt:
World War II’s Battle for Cassino leveled the Italian town and its hilltop abbey. Now, the 33,000 residents are digging out from the rubble left by Wall Street.

Six decades after U.S.-led forces ousted the Nazis from Cassino, a new generation is grappling with the fallout from the debts of postwar rebuilding — borrowings that grew because of a derivative that backfired. Soaring costs forced Cassino, 80 miles southeast of Rome, to settle an interest-rate swap with JPMorgan Chase & Co. (JPM) in 2009, leaving the town unable to pay for daycare for 60 infants and services for the poor.

For Iris Volante, who chairs Cassino’s assembly finance committee, the bankers who share responsibility for peddling the derivatives should pay with their jobs. She, like Occupy Wall Street protesters around the world, is demanding an overhaul of the financial system to stop history from repeating itself.

Excerpt:
Ask a Nobel Prize-winning economist what’s the difference between the mayor of Baltimore losing taxpayer money with derivatives sold by Wall Street and millions of Americans defaulting on subprime loans and he’ll say there isn’t any: State and local governments are victims of opaque financing they don’t understand, the same way individuals go broke on borrowing at rates too good to be true.

Martin O’Malley, Baltimore’s mayor in 2002, led his constituents into a financial trap that was supposed to save money on water, sewer and other projects. Now O’Malley, 48, is Maryland’s Democratic governor and the state’s biggest city faces a $90 million loss to get out of so-called auction-rate securities, the municipal equivalent of a floating-rate home loan that exploded when subprime lending collapsed and helped push Jefferson County, Alabama, into bankruptcy last week.

Like first-time buyers who stretched to finance a house and are stuck with underwater mortgages, borrowers from Baltimore to Denver are locked into more than $50 billion of auction-rate bonds sold by banks, which earned an estimated $20 billion in fees on related derivatives that municipalities and local governments in U.K. are prohibited from using because of the risk for catastrophic loss. U.S. cities face hundreds of millions more in penalties if they refinance the bonds into fixed-rate securities with the lowest yields since the 1960s.

‘Exploited’ by Banks

“These financially unsophisticated local officials were being exploited by big banks,” said Columbia University Professor Joseph Stiglitz, who won the Nobel Prize in 2001 with George Akerlof of the University of California, Berkeley and Michael Spence, now at New York University, for their analysis of markets with asymmetric information.

“The outrage was not just that there were high transaction costs, but that the risk wasn’t understood by those who used them,” Stiglitz said.

No one disagrees that wall street exploited these people who didn’t do their due diligence. But since they were not allowed to go bankrupt, what have we done? Told them keep it up no matter what you can’t lose, that is moral hazard 101, and merely makes my point.

This is by Bill Black. Find it at naked capitalism: “he New York Times published a column by its leading financial experts, Gretchen Morgenson and Louise Story, on November 22, 2011 which contains a spectacular charge against the Obama administration’s financial regulatory leaders. I have waited for the rebuttal, but it is now clear that the administration does not contest the charge.

The specific example that prompted the NYT article (“Financial Finger-Pointing Turns to Regulators”) was a civil action against a former executive
of IndyMac. IndyMac was supposed to be regulated by the Office of Thrift Supervision (OTS). OTS was the worst of the federal financial regulators – which is a large statement. It was so bad that the Dodd-Frank Act killed it. I used to work for OTS. One of the things I did to make myself unemployable during the S&L debacle was to testify before Congress against the head of our agency, Danny Wall, and our head of supervision, Darrell Dochow. Wall resigned in disgrace and Dochow was demoted and sent back to run the obscure office he had once run in Seattle.

Ms. Story and Ms. Morgenson’s column discusses how an IndyMac manager is defending himself against suit by arguing that Dochow told him to file false financial statements. OTS’ senior leaders knew from my book exactly what they were getting when they promoted Dochow and made him the top (anti) regulator for all the top S&L originators of fraudulent liar’s loans.

This column addresses a more general point, the charge that Obama’s financial regulatory leaders actively oppose the prosecution of elite financial criminals and the regulators who conspired with them (to use the term the article quotes Professor Kane as insisting upon).

“Any financial crisis case that named a regulator probably would turn into a huge political battle, because it would question many of the nontransparent acts that bank regulators take while trying to save banks, said Denise Voigt Crawford, former commissioner of the Texas securities board and now a law professor at Texas Tech University.

In any prosecution of bank regulators, she said, “you’d have the Justice Department in a fight with the policy goals of the Department of Treasury. Particularly in this environment, you know the banking regulators would fight it tooth and nail.”

Some longtime lawyers go further and say the overall scarcity of cases related to the financial crisis might be in part because regulators want to avoid scrutiny of their own kind.

“It’s not just one 30-year-old wunderkind who was responsible for the financial crisis,” said Dennis C. Vacco, who was the New York State attorney general in the 1990s and now is a lawyer at Lippes Mathias Wexler & Friedman. “Once you start pulling the string through in these complex cases, you might be surprised what you find at the other end.”

Mr. Vacco continued: “What’s at the end of the string? The defense may be that ‘at the highest echelons of the financial institutions, we were in regular contact with the government.’”

These charges are exceptionally severe. Senior former regulators are willing to be quoted by name asserting that Obama’s (not Bush’s) financial regulatory leaders are blocking lawsuits against fraudulent financial elites and their anti-regulatory co-conspirators because they fear embarrassment. That would be a disgraceful policy. Indeed, it is hard to think of a worse reason for granting the elite white-collar criminals that caused the crisis and the Great Recession immunity from prosecution. The fact that Obama has no response rebutting this grave charge against his administration’s integrity sounds loud, but not proud.”

As far as banking regulations, it’s clear that the rules in place favour banks now, the only way to correct this imbalance would be to look at the structure of fractional reserve banking which is another topic.

Excerpt:
While America focused on New Hampshire, a classic example of revolving-door politics took place in Washington, going almost completely unnoticed. It’s a move that ranks up there with the hire of Louisiana congressman Billy Tauzin to head the pharmaceutical lobbying conglomerate PhRMA — at a salary of over $2 million a year — immediately after Tauzin helped ram through the Medicare Prescription Drug Bill, a huge handout to the pharmaceutical industry.

In this case, the hire involves Walter Lukken, who toward the end of the Bush years was the acting head of the Commodity Futures Trading Commission. As the chief regulator of the commodities markets, it was Lukken’s job to spot and combat speculative abuses and manipulations that might have led to artificial price hikes and other disruptions.

In 2008, the last full year of his tenure, Lukken presided over some of the worst chaos in the commodities markets in recent history, with major disruptions in the markets for food products like wheat, cotton, soybeans, and rice, and energy commodities like oil.

Most notoriously, 2008 saw a historic spike in the price of oil futures, an enormously destructive speculative bubble that peaked in July of that year at the lunatic high price of $146 per barrel (Goldman, Sachs at the height of the mania was telling investors oil might go to $200 a barrel).

It was Lukken’s job to spot the speculative abuses leading to disruptions like that bubble, but he didn’t do it. Instead, he repeatedly insisted that there was nothing untoward going on, most notoriously through testimony before the House and the Senate at the height of the oil boom.

In testimony that summer, Lukken continually insisted that the price surge was due to normal supply-and-demand forces, ignoring the far more obvious explanation of a massive inflow of cash from commodity index speculators.

Despite data showing that the amount of commodity index speculation had grown from $13 billion in 2003 to more than $260 billion as of March 2008 — in other words, the amount of money betting on a rise in commodity prices had risen by a factor of twenty during that time — Lukken on May 7, 2008 told the Senate that a more likely explanation for the surge could be found in the growth of industrial demand from places like China, and also, get this, in changes in the weather:

These are extraordinary times for our markets with commodity futures prices at unprecedented levels. In the last three months, the agricultural staples of wheat, corn, soybeans, rice and oats have hit all-time highs. We have also witnessed record prices in crude oil, gasoline and other related energy products. Broadly speaking, the falling dollar, strong demand from the emerging world economies, global political unrest, detrimental weather and ethanol mandates have driven up commodity futures prices across-the-board.

On top of these trends, the emergence of the sub-prime crisis last summer led investors to increasingly seek portfolio exposure in commodity futures. As the federal regulator of these products, the CFTC is closely monitoring these growing markets to ensure they are working properly for farmers, investors, and consumers. To date, CFTC staff analysis indicates that the current higher futures prices generally are not a result of manipulative forces.

By insisting that the spike was “not a result of manipulative forces,” Lukken helped Wall Street in its efforts to avoid reforms that might have prevented such abuses, like the closing of a series of loopholes and exemptions that allowed a handful of major speculators to play a lopsided role in the setting of commodity prices.

So what was Lukken’s reward for helping the financial services industry avoid such reforms? Well, Lukken has just been named to head the Futures Industry Association, or FIA, the chief lobbying arm of futures investors.

This follows the Tauzin pattern of revolving-door hires: a government official carries water for a powerful industry, then moves on to take the cushy job with the industry’s lobbying arm once he leaves office.

Among people who follow these markets for a living, the Lukken hire had an embarrassingly over-the-top quality, like a CEO who goes the appearances-be-damned route and puts his 23 year-old secretary/mistress on the board of directors.

“Mr. Vacco continued: “What’s at the end of the string? The defense may be that ‘at the highest echelons of the financial institutions, we were in regular contact with the government.’””

what is so earth shattering about that? Government is the problem, we need a separation of government and the economy. Laissez Faire is the only way to go. Dog eat dog and let the buyer beware. Granny gets conned now and we have a massive regulatory state which is totally impotent, it is a Potemkin Village, just there to make stupid feel secure.

In a free market those “banksters” may still have been able to do what they did, but that is doubtful, but they absolutely would have paid the price through loss of their companies, personal fortunes [or substantial portions thereof] and they would not have been touched by any reputable company for the rest of their lives. In short they would have been done.

“Actually you did make that argument by implication. You did it when you said “Most of the elected government officials in this country along with the general population know nothing about money and finance” the implication being that government should be run by people who understand finance because they are allegedly financial professionals.”

More baloney, I specifically recommended people be taught finance and economics in high school. Since America is all about business and finance it seems like a good idea that people know something about those subjects, that way the financial types on wall st. would not have superior knowledge.

The young men in business suits, gingerly picking their way among the millwrights, machinists and pipefitters at Kansas City’s Worldwide Grinding Systems steel mill. Gaping up at the cranes that swung 10-foot cast iron buckets through the air. Jumping at the thunder from the melt shop’s electric-arc furnace as it turned scrap metal into lava.

“They looked like a bunch of high school kids to me. A bunch of Wall Street preppies,” says Jim Linson, an electronics repairman who worked at the plant for 40 years. “They came in, they were in awe.”

Apparently they liked what they saw. Soon after, in October 1993, Bain Capital, co-founded by Mitt Romney, became majority shareholder in a steel mill that had been operating since 1888.

It was a gamble. The old mill, renamed GS Technologies, needed expensive updating, and demand for its products was susceptible to cycles in the mining industry and commodities markets.

Less than a decade later, the mill was padlocked and some 750 people lost their jobs. Workers were denied the severance pay and health insurance they’d been promised, and their pension benefits were cut by as much as $400 (258 pounds) a month.

What’s more, a federal government insurance agency had to pony up $44 million to bail out the company’s underfunded pension plan. Nevertheless, Bain profited on the deal, receiving $12 million on its $8 million initial investment and at least $4.5 million in consulting fees.

Excerpt;
Wall Street firms will be getting a more modest payday this year, though how long it lasts will be anyone’s guess.

Executive paychecks at big financial firms are expected to come in around 30 percent smaller this year than they were in 2010, according to a recent report in the Wall Street Journal. The projections track with an overall expectation that quarterly earnings will prove underwhelming at some of the country’s largest banks when they are reported in a few days.

That executives could suffer alongside lower-level employees would be a slight shift away from recent expectations. While pay reductions are in store for bankers and executives at all levels of the corporate ladder, according to a separate WSJ article, it’s generally been the youngest and least-seasoned employees on Wall Street who have been most at risk for layoffs, and who stand to lose the most in salary and bonuses this time around.

And if history is any guide, this year’s salary declines might only prove a temporary setback, as banker pay dipped in the immediate wake of the financial crisis but rebounded relatively quickly.

Excerpt:
In 2006, while a housing bubble was swelling that would eventually trigger a near-collapse of the American economy, the Federal Reserve was more preoccupied with inflation than anything else, according to recently released transcripts of Federal Open Market Committee meetings.

The transcripts, which give word-for-word accounts of what was said at eight Fed meetings that took place in 2006, reveal that while some of the nation’s top bankers spotted the trouble brewing in the housing market, many more of them — including people who have since gone on to positions of greater prominence, like Secretary of the Treasury Timothy Geithner — believed their top priority should be heading off a rise in inflation.

In the meeting records, which were made public on Thursday, the repeated warnings about inflation echo a conversation that has taken place in recent months, with left-leaning economists saying the Fed should make more currency available to encourage spending and investment — and potentially ease the pain of an economy barely in recovery — and conservative economists arguing that this would push the value of the dollar too low.

“I think inflation risks should remain our predominant concern,” said Geithner, then president of the Federal Reserve Bank of New York, in late October of 2006.

To be sure, one of the Fed’s primary jobs is to keep inflation in check. Still, it’s notable that as one of the biggest financial crisis in U.S. history approached the nation’s top economists were asleep at the wheel.

“To be sure, one of the Fed’s primary jobs is to keep inflation in check. Still, it’s notable that as one of the biggest financial crisis in U.S. history approached the nation’s top economists were asleep at the wheel.” (from the huff link above)

Just like Bush’s Administration, the CIA and all other Intelligence agencies just prior to 9/11 … Republicans seem incapable of governing anything without falling asleep at the wheel and thus permitting havoc to reign on we, the citizens.

Excerpt:
Let’s say you’re a homeowner facing tough times. You’re starting to fall behind on your home insurance payments, but then, your bank steps in and buys an insurance policy on your behalf. Good news, right? Not if your bank steers you into a policy that’s 10 times more expensive than your previous one.

This practice, known as forced-place insurance, is the subject of a probe by New York State’s Department of Financial Services into some of the country’s biggest banks, according to reports in The New York Times and Reuters. The inquiry, which is already underway, has implicated a number of major financial firms, including JPMorgan Chase, Wells Fargo, Citigroup and Bank of America.

The stories of banks making costly, potentially destructive decisions on behalf of homeowners come as millions of Americans are already trying to cope with diminished wealth due to a weak housing market, which many allege was caused in part by banks and lenders pushing risky loans on homeowners.

Such allegations also recall earlier claims of reverse redlining, in which mortgage servicers systematically preyed on black homeowners and other minorities. Bank of America recently agreed to pay $335 million to settle claims of such discrimination by Countrywide Financial.

“Winning Our Future has spent $1.3 million so far to book television time in South Carolina, and it said on Thursday that it planned to spend a total of $3.4 million on radio and television ads through the Jan. 21 primary. It is financed by a $5 million donation from a wealthy casino owner in Las Vegas, Sheldon Adelson, who has long supported Mr. Gingrich.”

Several months ago, the nation’s biggest banks became embroiled in the “robo-signing” scandal, when it became clear that they had been approving thousands of foreclosures without verifying the proper documents or guaranteeing borrowers due process. The banks submitted fraudulent documents to courts and were forced to halt their foreclosures processes entirely as they sorted out what happened. “I had no idea what I was signing,” said one Bank of America employee. “We had no knowledge of whether the foreclosure could proceed or couldn’t, but regardless, we signed the documents to get these foreclosures out of the way.”

Robo-signing people into foreclosure is bad enough. But as it turns out, the practice may not have been limited to residential mortgages. American Banker, in fact, notes that JP Morgan Chase may also have been robo-signing credit card deals:

JPMorgan Chase & Co. has quietly ceased filing lawsuits to collect consumer debts around the nation, dismissing in-house attorneys and virtually shutting down a collections machine that as recently as nine months ago was racking up hundreds of millions of dollars in monthly judgments…It is unclear whether Chase has stopped pursuing collection on many claims nationwide, or if intends to pursue the debts in some other fashion. The bank has not explained its apparent moratorium and declined comment.

Chase’s halt does, however, follow scattered defeats in state courts and a whistle-blower’s allegation that it falsely overstated the balances of thousands of delinquent accounts it sold to a third party. Former Chase employees and debt collection experts insist that the bank would not have abruptly retreated from its collections efforts in the absence of trouble. […]

Robo-signing, or the high-volume production of signed legal documents, has been a key element of the governmental and media foreclosure reviews. Chase’s current pullback raises at least the possibility that at least some banks may have documentation problems in other business lines…”If sloppy record keeping and problems with false affidavits is a problem with mortgages, it’s 100 times bigger in credit card accounts,” says Michelle Weinberg of the Legal Assistance Foundation of Metropolitan Chicago.

As one finance blogger put it, “When a bank leaves money on the table for no obvious reason, you know that something’s not quite right.” It seems that JP Morgan, and who knows how many other banks, were attempting to collect on debts without being certain that the amount they were asking for was accurate. One whistle blower looked at $200 million in JP Morgan customer accounts and claims to have found that “half the accounts lacked adequate documentation of judgment and one-sixth listed the wrong amounts owed.”

Banks have been robo-signing documents since as least 1998, as an Associated Press investigation found, and its not all that surprising that a practice that worked so well for so long (at least in the eyes of the banks) would have migrated to other areas.

Excerpt:
For months, a massive federal settlement with big Wall Street banks over their role in the mortgage crisis has been in the offing. The rumored details have always given progressives heartburn: civil immunity, no investigations, inadequate help for homeowners and a small penalty for the banks. Now, on the eve President Obama’s State of the Union address—in which he plans to further advance a populist message against big money and income inequality—the deal may be here, and it’s every bit as ugly as progressives feared.

The Associated Press reports that a proposed deal could be announced within weeks. Five banks—Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial (formerly GMAC)—would pay the federal government $25 billion. About $17 billion would be used to reduce the principal that some struggling homeowners owe, $5 billion more would be used for future federal and state programs and $3 billion would be used to help homeowners refinance at 5.25 percent. Civil immunity would be granted to the banks for any role in foreclosure fraud, and there would be no investigations.

There are several reasons why this is could be a terrible deal. For one, the dollar amount is inadequate in relation to both the tremendous loss of wealth via mortgage fraud and the hefty balance sheets of these massive companies. Furthermore, the banks might be allowed to use investor money instead of their own funds—this makes the penalty even lower. Beyond all that: it’s extremely hard to justify the absence of investigations and punishment for mortgage fraud that was so widespread and so damaging to people’s lives.

There are also many other, more serious problems besides a lack of punitive action. The small amount of money—and the federal government’s recent inability to truly help underwater mortgage holders, of which there are currently 11 million—means that the victims of mortgage fraud might not see enough relief. And perhaps most importantly, with no real punishment for widespread damaging fraud, what are the incentives on Wall Street not to engage in similarly destructive practices once again?

On a major conference call this morning, many leading progressive voices inside Washington and out blasted the deal.

Senator Sherrod Brown of Ohio characterized the rumored deal as “not much more than a slap on the wrist,” and added that while banks were always know to be too big to fail, they were now apparently “too big to jail.”

“When laws are broken there need to be full investigations,” Brown said. “Wall Street should not get another bailout.”

Brown urged Obama to reject the deal and order investigations into the banks’ practices immediately. Simon Johnson, an economist at MIT and well-known progressive voice, also called for no deal and immediate investigations.

“This is not just the right thing do, and not just good politics, it’s good economics,” Johnson said. “What’s at stake here is the rule of law.”

Robert Borosage, co-director of the Campaign for America’s Future, blasted the rumored deal as well and urged the administration to consider the political optics.

“No one who robbed a bank would be offered immunity, a modest fine, and no admission of guilt before there was an investigation,” Borosage said. “Americans are increasingly cynical with the ability of democracy to deal with special interests.

How do I get a story to you on Bain & Goldman Sachs attorneys confessions to lying under oath and admitting intentional fraud on the court?

Case still open after 11 years and Court stated lying under oath 34 + was NOT proof of Perjury, While the US Attorney in DE (Connolly) refused to investigate or prosecute Goldman Sachs, Bain and its law firm MNAT.

But Colm Connolly also had his OWN issue of a serious Conflict of Interest.